A-iTrust distributable hits $45.8m

ASCENDAS India Trust (A-iTrust) yesterday reported net property income of $60.5 million for the 12 months ended March 31, 2008 – up 51 per cent from $40.2 million the year before.

The improvement was driven by a 50 per cent jump in property income to $102.7 million year on year.

Distributable income for FY2007-08 was $45.8 million. This translated to distributable income per unit (DPU) of 6.09 cents, or 9 per cent higher than the forecast of 5.6 cents.

Based on a closing price of $1.04 a unit on March 31, the annualised yield was 5.86 per cent.

For Q4, DPU was 1.64 cents. With Q3’s DPU of 1.5 cents, a total of 3.14 cents will be paid on May 28.

A-iTrust was the first Indian property trust listed on the Singapore Exchange – in August last year. Its portfolio comprised four Indian IT parks at end- March.

A-iTrust said its asset portfolio has grown and the performance of its properties has improved. The occupancy rate for the portfolio is 96 per cent, and the renewal rate of expired leases is 92 per cent.

The trust is maintaining a distribution forecast of 6.85 Singapore cents made for FY2008-09 in its listing prospectus.

Jonathan Yap, CEO of the trustee-manager, said: ‘We remain focused on actively managing the portfolio’s income stability and enhancing returns through organic growth.’

The trust will continue to develop the land it owns and acquire new assets in a yield-accretive manner, Mr Yap said. ‘We aim to do so through an optimised capital structure.’

Gearing for the trust was 4 per cent at the end of Q4, leaving it with about $300 million of borrowing capacity for developments or purchases before gearing reaches 35 per cent.

JPMorgan rated A-iTrust ‘overweight’ in early April, with a target price of $1.54. The trust’s units closed two cents lower at $1.18 yesterday.

Growing Strongly

Comment on Results

A-iTrust reported a strong set of 3Q08 results. Gross revenue was up 60% yoy and 7% qoq to S$27.0m. The strong performance was attributable to strong rental renewals at 91% above preceding rates and completion of 2 buildings, Vega at V and Crest at ITPC which added 1.1m sf to portfolio. Net profit was up >100% to S$33.2m mainly due to revaluation gain of S$28.1m (net of deferred tax) on its Vega property.

Revaluation gain. More revaluation gains are expected in the pipeline in 4Q08 when the Crest obtains the necessary certification. Gearing at a low 4%, giving the trust ample borrowing capacity of S$550m for acquisitions up to management’s imposed limit of 60% gearing.

Recommendation

We are positive that A-iTrust is poised to benefit from India’s growth in the IT/ITES sector through having assets locations at key IT-related industry clusters in Hyderabad, Chennai and Bangalore. Therefore, A-itrust provides the opportunity for investors to ride the real estate up-cycle in India.

Strong sponsor support in terms of future acquisitions that will potentially grow A-iTrust’s portfolio by 85% through its 2 ROFR agreements with Ascendas Land International and Ascendas India Development Trust. We maintain BUY with TP S$1.84 based on DCF valuation.

$11.3m Q3 distributable income for Ascendas India

ASCENDAS India Trust has reported a distributable income of $11.3 million for the third quarter ended Dec 31, 2007.

Net property income was $15.7 million – 57 per cent higher than the same quarter last year – while DPU was 1.50 Singapore cents over the period.

For the first nine months of the year, the trust reported a DPU of 4.45 cents – representing an annualised yield of 5 per cent over the IPO price of $1.18 per unit.

The trust attributed the strong showing to continued high portfolio occupancy of 99 per cent, rising average rental rate and constant focus on cost efficiency.

Net asset value as at end-December was $857.7 million or $1.14 per unit.

Said chief executive officer of the trustee-manager, Jonathan Yap: ‘We are pleased to report the construction completion of two buildings – Vega at The V (Hyderabad) and Crest at International Tech Park Chennai – with a combined 1.1 million sq ft of space.

‘The two buildings expanded the trust’s portfolio by 31 per cent to 4.7 million sq ft and their combined occupancy is 91 per cent as at Jan 23, 2008.’

The trust said this provides a ‘solid foundation to the forecast 22 per cent distributable income increase in the next financial year over the forecast for the current year, as disclosed in the listing prospectus’.

It added that works on additional development are also in progress.

For example, a master plan has been completed to develop ‘the balance 2.7 million sq ft of space’ in International Tech Park, Bangalore.

Plans are in place to make government approval submission for the first phase of the development.

In addition, the manager aims to add an additional level of growth through acquisition, ‘be it through the two first rights of refusal it enjoys or from the market’.

It has a first right of refusal from Ascendas Land International and Ascendas India Development Trust to acquire substantially income-producing business space.

The former is Ascendas’ main overseas investment vehicle and the latter is a private fund managed by Ascendas with a target investment value of $1 billion.

Looking ahead, the trust manager said the trust will continue to focus on growing the operating earnings of its assets, optimising its capital structure, and growing the portfolio.

Given the strong nine- month results, it is confident of at least meeting the 5.6 Singapore cents forecast for the current financial year.

Source of opportunity

We initiate coverage of A-iTrust with a 12-month sum-of-the-parts/DCFbased target price of S$1.66 and a Neutral rating. We like A-iTrust’s development potential, enhanced by a 20% development limit (10% for SREITs), but see the Singapore Industrial REITs offering a better risk/reward for industrial REITs. For example, Pan-Asian logistics REIT Mapletree is trading at a 240 bp yield over A-iTrust, and also operates in a sector where we see abundant acquisition opportunities.

A-iTrust is Singapore’s first listed Indian property business trust, offering exposure to the fast-growing IT services sector in India. Spun off from parent Ascendas, we believe A-iTrust will enjoy stable organic growth from seed investments in four business parks over the next five years, and has a built-in development pipeline of about 4.2 mn sq. ft. of SBA (super built-up area), potentially doubling its current portfolio of 4.7mn sq. ft. We think A-iTrust’s investment platform also offers good acquisition growth potential. We see acquisitions for A-iTrust fueled by its right of first refusal (ROFR) over income producing assets from parent Ascendas and the Ascendas India Development Trust, a private fund with committed capital of S$500mn (target of S$1bn in investment value).

Catalyst

A-iTrust operates in the world’s largest center for IT and ITES outsourcing with a 55%–60% global market share. With the Indian IT services sector expected to reach US$60bn in exports and US$13– US$15bn in domestic revenues by 2010 (projected FY2000-10E CAGR of 29%), prospects for rental growth in business parks space appear to be good. We expect near-term share price performance to be driven by strong pre-commitments on two recently completed buildings, namely Crest, the second building at International Tech Park Chennai (ITPC) and Vega, the fifth building at the V. In the longer term, we see the unveiling of plans for development of its 2.7mn sq. ft. special economic zone (SEZ) pipeline as a further catalyst.

Valuation

We derive our 12-month target price of S$1.66 using a DCF base-case per share value of S$1.06 and land bank NAV per share of S$0.60 (land bank = 2.7mn sq. ft.). By geography, we estimate that 45% of 08E NPI will come from Bangalore, 40% from Hyderabad and 15% from Chennai. We see its conservative capital structure — 4.1% at its listing in Aug 07 — increasing to 22% post the planned development projects in International Tech Park Bangalore (ITPB) and ITPC by FY09, implying debt capacity of S$220mn (35% regulatory debt/asset limit). A-iTrust is trading at yields of 4.2% FY0E8 and 4.9% FY09E, underpinned by a solid 3-yr DPU CAGR we project at 12.9%. We like A-iTrust’s unique growth model and Ascendas parentage, but believe much of its potential is already priced in the shares.

Key risks

Regulatory risks and a slowdown in the Indian IT services sectors could result in rental pressures.

Valuation remains attractive

Comment on Results

1HFY08 results in line with expectations. Total property revenue grew 54% to S$48.5m, as a result of the inclusion of CyberPearl and ITPC to the portfolio, higher rental rates and the leasing of Navigator Building at ITPB (completed in Jan 07). Distributable income of S$22.2m was 17% higher than forecast, with a reported DPU of 2.95 cents.

NAV. As at 30 Sep 07, A-iTrust has an NAV of S$869.6m and this translates to S$1.16 per unit. This is 10% higher than the pro forma NAV of S$1.05 per unit at listing.

Recommendation

Strategy. Moving forward, a-iTrust will continue to seek organic growth, develop its in-built development pipeline and grow via acquisitions. With debt headroom of at least S$150m, this provides a-iTrust the capacity to make third-party acquisitions or undertake further development projects.

Maintain Buy, target price of S$1.84. Based on DDM valuation, we have a raised target price of S$1.84 due to Vega, the completing 5th building at The V (Hyderabad), which added 408,000 sq ft SBA instead of the earlier disclosed 377,000 sq ft.

We have reduced our DPU forecast by 3% in FY08 due to the expected completion for The Crest being delayed from Aug 07 to Nov 07.